The Bureau of Labor Statistics reported the economy generated 261,000new jobs in October. The “headline rate” of unemployment fell to 4.1 percent. Each monthly nonfarm payroll report includes revisions to the past 2 months. For September, the revision turned a loss of 33,000 jobs into a gain of 18,000;for August, the revision was from 169,000 jobs to 208,000. We anticipated September would be bad because of the hurricanes and even with the revision it was bad, but the revision means the streak of monthly job gains now stretches to 85 months – a record. To smooth out the numbers we can look at the average job gains over the last 3 months – just over 162,000 jobs per month. Companies are still hiring at a steady clip, job openings are near a record high and unemployment is at a 17-year low. Still, most economists expected a much stronger rebound in the October numbers – closer to 325,000 – so this report is a bit disappointing. Also, wages proved a disappointment.

The U6 rate fell 0.4 points to7.9 percent. Its pre-recession low was 8 percent in March 2007, but it was lower than that earlier in the 2000s, reaching 6.9 percent in mid-2001. The U6 count covers a number of categories, including unemployed, underemployed and underutilized or part-time workers who want—but cannot find—full-time positions. More than 5 millionAmericans who would like full-time work have only been able to find part-time positions.

The Labor Force Participation Rate decreased in October to 62.7% from 63.1%. This is the percentage of the working age population in the labor force. The participation rate is historically low and unlikely to increase significantly as the baby boomer generation continues to move into retirement. In October, the labor force fell by 765,000. This is why the unemployment rate dropped down to 4.1%, because the size of the workforce shrank, not because there was a big surge in new jobs. Some people claim there just aren’t many potential workers left to pull off the sidelines. Job openings are not being filled. Employers claim there is a skills gap, yet they are not raising wages and they are not providing training to people who might be able to fill positions. Further, they are not even considering many potential candidates who do not have a 4-year degree, or who might have a criminal conviction in their history.
Of the 261,000 total new jobs, 252,000 were created in the private sector, 9,000 in the public sector. The biggest gains in employment came from Leisure & hospitality: 106,000 – a bounce back from the hurricanes Harvey and Irma. Puerto Rico was not included in the monthly report. Professional services added 50,000. Education and health services: 41,000. Manufacturing added 24,000 jobs. Construction gained 11,000. The hurricanes created a demand for workers to rebuild homes, roads and other structures damaged by the storms. That led some economists to expect a surge in storm-related hiring but we haven’t seen it yet. Transportation jobs: 8,400. Retail lost 8,300, the eighth time in nine months that employment has declined in the sector; and this is the season when you would expect retailers to be adding jobs. Mining and logging lost 1,000 jobs – this category includes jobs in the oil patch.

State-level data for September showed that Florida’s jobs market was affected the most by hurricanes, as payrolls declined by 127,000. It’s not certain that all those jobs were regained by the reference week for the October jobs report, which included the 12th day of the month. Before the hurricanes, employers were hiring at the pace of about 170,000 jobs per month this year. That’s down from an average of about 190,000 in 2016 and nearly 230,000 in 2015, but it still represents a solid pace of growth. The hurricanes make it difficult to draw conclusions. We probably need to wait for at least another month or two of data, and then focus on longer term trends.

The average wage for all workers slipped 1 cent an hour. Compared with last October, the average year-over-year gain was 63 cents, a 2.4 percent year-over-year increase. The average work week for all employees on non-farm payrolls remained unchanged in October at 34.4 hours. The small drop in wages may be the biggest disappointment of today’s report. Part of this goes back to the hurricanes. When restaurant and hospitality workers were out of work for a while, the averages for wages went up slightly; now that those low paid workers are back on the job, wages shrink. That is the very short-term explanation for disappointing wages. But wage growth, or the lack thereof, is a much longer-term trend. Over the longer run, wages have been rising faster than inflation, but slowly by historical standards. That wasn’t a surprise early in the recovery, when there were millions of unemployed workers clamoring for jobs — and giving employers little incentive to raise pay. But the unemployment rate is now at 4.1%, lower than it ever got during the previous economic expansion. Standard economic models suggest that should lead to faster wage growth. Many people claim that 4.1% represents full employment. While we keep getting closer to full employment, I don’t believe we are there yet. How will we know we know when we are there? Wages go up. The pendulum swings from favoring employers to favoring workers.

This might be a good time to talk about wages and taxes. There was a big tax plan announced this week, as you know. And the biggest proposed cuts were for corporations, which could see cuts over $1 trillion. Best case scenario for workers is half that amount. The plan calls for cutting corporate rates from 35% to 20% and cutting pass-through rates to 25%, while the top individual rates would still be 39.6%. Here is an example: let’s say you have two taxpayers. Citizen A is a hard-working professional who earns $300,000 a year. Citizen B is a trust fund baby who inherited a big pile of money and lives off the dividends and capital gains to the tune of $300,000 a year. Who pays more taxes? The worker pays more – a lot more – about $63,000 more. The worker faces an effective tax rate of 34% and the investor pays an effective tax rate of 14%.

Politicians have intentionally set tax rates on wages much higher than those on long-term investment returns. The U.S. has a progressive tax system in the sense that well-paid workers sacrifice much more than poor workers on their “ordinary income.” But Americans with unearned income — qualified dividends and long-term capital gains — get a break. A billionaire investor can pay about the same marginal rate as a $40,000-a-year worker, a fact Warren Buffett has famously lamented.

There’s evidence that investors feel influenced by taxes far more than workers do. If you worry about tax incentives distorting the economy, taxes on workers should worry you less: People tend to keep going to work every day no matter what. Investors, by contrast, are much more sensitive — at least in the short term. It’s happening now: If taxes on the wealthy drop next year, as many tax planners assume they will, then rich people have an incentive to wait until 2018 to recognize investment income by selling stocks or businesses they own. And that seems to be what they’re doing; revenue to the U.S. Treasury dipped this year even as the economy remains strong. So, the thinking is that politicians slam workers over investors, because they can get away with it. There’s a big flaw, though, in the argument that lower taxes on the rich stimulate longer-term investment, and thus jobs, famously labeled as “trickle-down economics.” While tax rates might affect the timing of some investor decisions in the medium term, it’s much harder to see how they affect long-term behavior. No matter the tax rate, investors ultimately look for opportunities to get richer. The most famous economic boom in U.S. history, right after World War II, occurred when the top rates on dividends were between 70 and 90 percent. Rapid growth also followed tax hikes on wealthy investors in the late 1980s and early ’90s. And more than a decade later, the Great Recession swamped any conceivable benefits from then-President George W. Bush’s tax cuts, which dropped the top rate on dividends by half. Even if you believe low investment taxes can spur economic growth, you might question whether lowering taxes further will have much of an effect these days. The vast majority of wealth held by the middle class is held in homes and retirement accounts. Tapping a retirement account never triggers a capital gains tax, and selling a home only does if the gain is more than $250,000 for a single person and $500,000 for a couple. If you have less than $38,000 in investment income, you already pay a tax rate of zero.

House Speaker Paul Ryan said, “We want a tax code built for growth. We want a tax code that raises wages, keeps American companies in America, gives us faster economic growth.”

The reality is that there are many reasons why wages remain stagnant, including: automation, globalization, demographics, and even the tax code – and I don’t expect any rewrites to change that.